Panel Data Reduces Bias in Entry Models
18 Pages Posted: 13 Oct 2008
Date Written: 2006
Abstract
Entry Models such as Bresnahan and Reiss(91)[4] can under estimate the effect of competition. If the profitability of marketsis mismeasured, this introduces an positive correlation between unoberserved profitability and the number of firms in a market. Using data on entry and exit patterns in the Ready-Mix Concrete Industry from 1976-1999, I show that using fixed effectsin a Bresnahan-Reiss entry model reduces the coefficient on demand by 50% and increases the coefficient on competition by 100% compared to the no fixed effect benchmark.
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